Systematic screening Why?

Most businesses fail in less than two years Fewer than 1% of the business plans submitted to VCs get funded Business failures lead to huge collateral damages Failures are planned by lack of planning

Chapter 1: My Opportunity: Why Will or Wont This Work?

The New Business Road Test
John W. Mullins

The Seven Domains of Attractive Opportunities

Market Domain Industry Domain Market attractiveness Macro-level
Mission, Ability to execute aspirations, Team on CSFs propensity for Domain risk Connectedness up, down, across value chain

Industry attractiveness

Micro-level

Target segment benefits and attractiveness

Sustained advantage

The Seven Domains of Attractive Opportunities

Insights Provided by The Model
Markets and industries are not the same Both macro- and micro-level considerations are necessary: markets and industries must be examined at both levels The keys to assessing entrepreneurs and entrepreneurial teams arent simply found on their resumes or in assessments of their entrepreneurial character

The Seven Domains of Attractive Opportunities

Addresses The Central Elements in the Assessment of Any Market Opportunity
Are the market and the industry attractive? Does the opportunity offer compelling customer benefits as well as a sustainable advantage over other solutions to the customers needs? Can the team deliver the results they seek and promise to others?

Differences Between Markets and Industries

Markets
Consists of a group of current and/or potential customers having the willingness and ability to buy productsgoods or servicesto satisfy a particular class of wants or needs.
Thus, markets consist of buyerspeople or organizations and their needsnot products. One such market, for example, consists of businesspeople who get hungry between meals during their workday. Well call this the market for workplace snacks.

Differences Between Markets and Industries

Industries
An industry consists of sellerstypically organizations that offer products or classes of products that are similar and close substitutes for one another.
What industries serve the market for workplace snacks? At the producer level, there is the salty snack industry, the candy industry and the fresh produce industry, to name but three. There are also industries providing the distribution of these products to workplaces, including the supermarket industry, the restaurant industry, the coin vending machine industry, the coffee bar industry and so on.

Is the Market Attractive? Macro- and Micro- Considerations

Macro-level
Market size
Number of customers in the market, say for workplace snacks The aggregate money spent by these customers on the relevant class of goods or services, in this case workplace snacks The number of units of relevant products or usage occasions, such as workplace snacks, bought annually

Market growth rate Environmental trends

Do the trends favor the opportunity, or will the entrepreneur be swimming against a powerful tide?

Is the Market Attractive? Macro- and Micro- Considerations

Micro-level analysis is based on four key questions
Is there a target market segment where we might enter the market in which we offer the customer clear and compelling benefits at a price they are willing to pay? Are these benefits, in the customers minds, different from and superior in some way--better, faster, cheaper or whateverthat whats currently offered by other solutions? Differentiation is crucial. The vast majority of me-too products fail How large is this segment, and how fast is it growing? Is it likely our entry into this segment will provide us entry to other segments we may wish to target in the future?

Is the Market Attractive? Macro- and Micro- Considerations

Takeaways from analysis
Many aspiring entrepreneurs make the mistake of examining only the macro-level Through failing to identify the first customers who will buyalmost by nameand why they would benefit, and in ignoring how entry into this segment might create one or more options for growth into other market segments, they risk pursuing a deal-end path on two counts:
Without differentiated benefits, most customers wont buy Without a pathway to growth, most investors wont invest

Is the Industry Attractive? Macro- and Micro- Considerations

Macro-level
Industry attractivenessPorters five forces
Threat of entry, buyer power, supplier power, threat of substitutes, competitive rivalry The more forces that are favorable, the more attractive the industry Once all the five forces have been assessed, the key outcome is to reach a clear conclusion about the attractiveness of ones industry

Porters Five Forces Model of Competition

Threat of Threat of New New Entrants Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products

Is the Industry Attractive? Macro- and Micro- Considerations

Micro-level
A new venture is not likely to grow over the long term if the initial advantage it brings to its customers cannot be sustained in the face of subsequent competitors entry of if its business model lacks economic viability Thus identifying and assessing the sustainability of the proposed new firms competitive advantage is necessary to fill in the micro-level industry piece of the opportunity assessment puzzle

Is the Industry Attractive? Macro- and Micro- Considerations

Micro-level
Factors that help a firm sustain its competitive advantage
The presence of proprietary elementspatents, trade secrets and s onthat other firms are unable to duplicate or imitate The likely presence of superior organizational processes, capabilities or resources that others would have difficulty duplicating or imitating The presence of an economically viable business modelone that wont quickly run out of cash. This factor, in turn, involves a careful look at some more detailed issues:

Is the Industry Attractive? Macro- and Micro- Considerations

Micro-level
Factors that help a firm sustain its competitive advantage
The presence of an economically viable business modelone that wont quickly run out of cash. This factor, in turn, involves a careful look at some more detailed issues:
Revenue, in relation to the capital investment required and margins obtainable Customer acquisition and retention costs, and the time it will take to obtain customers Gross margins and their adequacy to cover the necessary costs structure to operate the business Operating cash cycle characteristics, i.e. how much cash must be tied up in working capital such as inventory, how quickly will customers pay, and how slowly may suppliers and employees be paid, in relation to the margins the business generates

Can The Team Deliver?

Questions of Interest Beyond Examining Resumes
Does the opportunity fit the teams business mission, personal aspirations and risk propensity? Does the team have what it takes, in a human sensein experience and industry know-howto deliver superior performance for this particular opportunity, given its critical success factors, i.e.,..
Those factors that tend to distinguish between the better performing and poorer performing firms in the industry one proposes to enter

Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant?

Chapter 2: Will the Fish Bite?

The New Business Road Test
John W. Mullins

Do Customers Matter?
Its not about you. Its not about your revolutionary products or services. Successful entrepreneurial ventures are about serving customers and their needs. Not just any customers. Target customers. Its about providing differentiated benefits that are so compelling that customers abandon their allegiance to former providers and give their business to you.

The Seven Domains of Attractive Opportunities

Market Domain Industry Domain Market attractiveness Macro-level
Mission, Ability to execute aspirations, Team on CSFs propensity for Domain risk Connectedness up, down, across value chain

Industry attractiveness

Examined in Chapter 2

Micro-level

Target segment benefits and attractiveness

Sustained advantage

Four Critical Micro-level Questions About Target Markets

Four Crucial Questions (for Micro-level analysis)
Is there a target market segment where we might enter the market in which we offer the customer clear and compelling benefits, at a price he or she is willing to pay? Are these benefits, in the customers minds, different from and superior in some waybetter, faster, cheaper or whateverto whats currently offered by other solutions? How large is this segment, and how fast is it growing? Is it likely that our entry into this segment will provide us entry into other segments that we may wish to target in the future?
Talk about lifestyle issues

The New Business Road Test: Stage One The Micro-Market Test
What customer pain will your offering resolve? How strong an incentive do customers have to give you their money? Will the fish bite? Who, precisely, are the customers that have the pain? Do you have detailed, accurate and current information about who they are, where they live or do business, or what they do? What benefits does your offering provide that other solutions dont? What evidence do you have the customers will buy what you propose to offer?

The New Business Road Test: Stage One The Micro-Market Test
What evidence can you provide to show that your target market has the potential to grow? What other segments exist that could benefit from a related offering? Can you develop capabilities that are transferable from one segment to another?

Chapter 3: Is This a Good Market?

The New Business Road Test
John W. Mullins

The Seven Domains of Attractive Opportunities

Market Domain Industry Domain Market attractiveness Macro-level
Mission, Ability to execute aspirations, Team on CSFs propensity for Domain risk Connectedness up, down, across value chain

Industry attractiveness

Examined in Chapter 3

Micro-level

Target segment benefits and attractiveness

Sustained advantage

Three Crucial Questions About Markets

Three Crucial Questions
Is my market large enough today to allow different competitors the opportunity to serve different segments without getting in others way? What are the predictions for your markets short-term growth rate? (In the absence of other information to the contrary, the recent rate of growth in your market may be the best available predictor of growth in the near future) What are the predictions for your markets long-term growth rate?
(This is likely to be influence heavily by macro-trends: economic, demographic, sociocultural, technological, regulatory and/or natural)

The New Business Road Test: Stage TwoThe Macro-Market Test

What sort of business do you want? One with potential to become a huge business, or a small lifestyle operation servicing a niche market? Without answering this question first, you cannot assess for your particular opportunity the means of the others below. How large is the market you are seeking to serve? In how many ways have you measured it? How fast has it grown over the last on/three/five years? What economic, demographic, sociocultural, technological, regulatory or natural trends can you identify that will affect your market, and what effect, favorable or otherwise, will these trends have on your business

Chapter 4: Is This a Good Industry?

The New Business Road Test
John W. Mullins

The Seven Domains of Attractive Opportunities

Market Domain Industry Domain Market attractiveness Macro-level
Mission, Ability to execute aspirations, Team on CSFs propensity for Domain risk Connectedness up, down, across value chain

Industry attractiveness Examined in Chapter 4

Micro-level

Target segment benefits and attractiveness

Sustained advantage

Industry Attractiveness

Higher Threat

Lower Average Profits

The New Business Road Test: Stage ThreeThe Macro-Industry Test

Based on all five forces, what is your overall assessment of this industry? Just how attractive or unattractive is it? If your industry is a poor performer overall, are there persuasive reasons why youll fare differently? If not, move on.

A Quick Recap of the 7 Domains

Mullins 7 Domain Framework

1.Micro Level Market Assessment
a) Micro level questions about target markets b) Three ways to define market segments c) Micro market test

Mullins 7 Domain Framework

1.Micro Level Market Assessment a) Micro level questions about target markets

Is there a target market segment in which we offer the customer clear and compelling benefits, at a price he or she is willing to pay? Are these benefits, in the customers minds, different from and superior in some way to whats currently offered by other solutions? How large is this segment, and how fast is it growing?

Mullins 7 Domain Framework

1.Micro Level Market Assessment b) Three ways to define market segments
1. Demography 2. Geography 3. Customer Behavior

Mullins 7 Domain Framework

1.Micro Level Market Assessment c) Micro market test
What customer pain will your offering resolve? Will customers buy what you propose to offer? Who precisely are the customers? Do you have detailed accurate information about who they are, where they live or do business or what they do? Are there other segments that could benefit from a related offering?

Mullins 7 Domain Framework

2. Macro level Market assessment
Macro Market Test

What sort of business is sought? How large is the market? How fast can it grow? How quickly can it grow in the next 6 months or 2/3/5 years? What trends can be identified and how will it affect the business?

Mullins 7 Domain Framework

3. Macro level Industry assessment
a) Porters Five forces analysis b) The macro industry test

Mullins 7 Domain Framework

3. Macro level Industry assessment
a) Five macro level questions to assess the industry based on Michael Porters five forces Threat of Entry, Supplier power, Buyer power, Threat to substitutes, Competitive Rivalry

Mullins 7 Domain Framework

3. Macro level industry assessment
b) Macro Industry Test
What industry will you compete in? Define it carefully. Based on all five forces, what is your overall assessment of this industry? Just how attractive or unattractive is it? If your industry is a poor performer overall, are there persuasive reasons why you will fare differently?

Mullins 7 Domain Framework

4. Micro level industry assessment
The Micro industry test:
Do you require proprietary elements - patents, trade secrets and so on that other firms cannot likely duplicate or imitate? Can your business develop and employ superior organizational processes, capabilities or resources that others would have difficulty in duplicating or imitating? Is your business model economically viable i.e. can you show that your company wont run out of cash quickly?

Mullins 7 Domain Framework

5. Mission, Aspiration and Risk test for entrepreneurs

Whats your entrepreneurial mission? What level of aspirations do you have for your entrepreneurial dream? What sorts of risk are you and are you not willing to take ?

Mullins 7 Domain Framework

6. The can you and your team execute? test

What are the few - only a handful, please critical success factors (CSFs) in your industry? Can you demonstrate - in past deeds, not mere words that your team taken together can execute on each and every one of these CSFs? Have you identified which CSFs your team is not well prepared to meet, for which you need help in filling out your team?

Mullins 7 Domain Framework 7. The connectedness test

Who do you and your team know across the value-chain among your customers, suppliers, competitors and substitutes?